Current Issue

Seoul Journal of Economics - Vol. 38 , No. 2
[Paper List]

[ Article ]
Seoul Journal of Economics - Vol. 38, No. 2, pp. 195-238
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 May 2025
Received 04 Dec 2024 Revised 31 Jan 2025 Accepted 03 Feb 2025
DOI: https://doi.org/10.22904/sje.2025.38.2.003

The Estimation of Quarterly Potential GDP using Industry-level Quarterly Total Factor Productivity Estimates in Korea
Hak K. Pyo ; Keun-Hee Rhee ; Charlie Nam
Hak K. Pyo (corresponding author): professor emeritus, Faculty of Economics, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 08826, Korea (hakkpyo@gmail.com)
Keun-Hee Rhee: visiting fellow, Institute of Economic Research, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 08826, Korea (keunh.rhee@gmail.com)
Charlie Nam: Columbia Climate School, Columbia University, New York, NY 10025, USA (cn2660@columbia.edu)

JEL Classification: D24, O47

Abstract

This study estimates the quarterly potential GDP of Korea from 2012 Q1 to 2023 Q4 by using industry-level total factor productivity (TFP) data. By referring to the EU KLEMS classification and Fernald (2014), this study constructs a quarterly capital stock and TFP database for 17 industries and adjusts their labor and capital inputs with proxy variables, namely, the labor intensity index and the capacity utilization index. This study compares models with and without input adjustments and reveals a post-pandemic decline in labor productivity and a slow capital input recovery. The adjusted model shows significantly high TFP contributions, which highlights the importance of input adjustments for accurate TFP analyses and potential GDP estimates. The GDP gap is negative during the pandemic period. Although the GDP gap became positive in 2023 Q4, the subsequent decline in the quarterly potential GDP growth indicates economic stagnation in Korea.

Keywords: Total factor productivity, Potential GDP, Capital adjustment, Labor input
Acknowledgments

An early version of this paper was presented at the Research Institute of Economy, Trade and Industry (RIETI) Studying Group Seminar (November 28, 2024). We appreciate the comments from RIETI Kyoji Fukao, Prof. Tsutomu Miyagawa, Prof. Konomi Tonoki, Prof. Keiko Ito, Prof. Hyeog Ug Kwon, and Prof. Young Gak Kim.

References
1. Basu, S., Fernald, J. G., and Kimball, M. S., “Are Technology Improvements Contractionary?” The American Economic Review 96(No. 5 2006): 1418-1448.
2. Brynjolfsson, E., Rock, D., and Syverson, C., Artificial Intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics, NBER Working Paper 24001, 2017.
3. Fernald, J., A Quarterly Utilization-Adjusted Series on Total Factor Productivity, Federal Reserve Bank of San Francisco Working Paper 2012-19, 2014.
4. Jorgenson, D.W., and Griliches, Z., “The Explanation of Productivity Change.” Review of Economic Studies 34(No. 3 1967): 249-283.
5. Pyo, H. K., Chun, H. B., and Rhee K. H., International Comparison of Total Factor Productivity (in Korean), Korea Productivity Center, 2021.
6. Pyo, H. K., and Song, S., “The Estimation of Quarterly Capital Stocks and Potential GDP in Korea (1981-2012) (in Korean).” Economic Analysis for Korean Economy 20(No. 3 2014).
7. Pyo, H. K., Rhee, K. H., and Bin, Y. J., COVID-19 Pandemic and Total Factor Productivity in the Utilization-Adjusted Quarterly Model of Korea (2012-2021), presented at 7th World KLEMS Conference, 12-13 October, 2022, Manchester, 2022.
8. Zaid, M., and Bodger, P., “Forecasting Electricity Consumption in New Zealand using Economic and Demographic Variables.” Energy 30(No. 10 2005): 1833-1843.
 

Editorial Office, Seoul Journal of Economics, Institute of Economic Research, Seoul National University 599 Gwanangno, Gwanak-gu, Seoul 151-746, Korea
Tel: +82-2-880-5434 | Fax: +82-2-888-4454 | E-mail: sje@plaza.snu.ac.kr
Copyright (c) 2020 SJE. All rights reserved.